You Have Some Property for Sale and Have Received Two

question 107

Multiple Choice

You have some property for sale and have received two offers.The first offer is for $89,500 today in cash.The second offer is the payment of $35,000 today and an additional $70,000 two years from today.If the applicable discount rate is 11.5 percent,which offer should you accept and why?

• A)You should accept the $89,500 today because it has the higher net present value.
• B)You should accept the $89,500 today because it has the lower future value.
• C)You should accept the first offer as it has the greatest value to you.
• D)You should accept the second offer because it has the larger net present value.
• E)It does not matter which offer you accept as they are equally valuablE.

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Definitions:

Monthly Depreciation Expense

The portion of the total depreciation of an asset that is allocated for a particular month.

Salvage Value

The forecasted final value of an asset once it has exhausted its functional duration.

Note Payable

A written promise to pay a specified amount of money, usually with interest, at a future date; a form of debt.

Interest Rate

The percentage of a sum of money charged for its use, typically expressed as an annual rate.